Automated investing might be the smartest way to simplify wealth-building. By automating your investing you’re less likely to miss funds as they are withdrawn from your paycheck and transferred directly into your 401(k) or an investment account. From beginners to sophisticated options traders, automated investing is a crucial strategy to compound investment growth. We’ve designed this guide to help you explore the ways to automate your investing from simply reinvesting dividends to regular transfers into a robo-advisor.
How to Automate Your Investing
It’s usually quick and easy to automate your investing. Before setting up the account, review the platform’s FAQ pages for the range of account minimums and potential approvals needed to open an automated investing account. Each platform will have its own process. Next, gather your bank account and personal information, such as your Social Security number. The investment account platform will walk you through the process step-by-step.
Here’s what you can expect when setting up your automated investing account:
- Create an investment account: Account setup involves choosing a user ID and password for the account. Then you’ll select the type of account you prefer, such as a taxable investment or IRA account. Advanced traders that look to use leverage in their swing trading may first need approval to open certain brokerage accounts.
- Choose your assets: With robo-advisors and micro-investing apps, you’ll answer several questions about your goals, comfort with risk, and time horizon, and the platform will select the assets for you. Workplace retirement accounts provide a list of investments from which to choose, while self-directed investment accounts offer thousands of stocks, bonds, ETFs, and mutual funds. Frequently, you’ll find helpful articles to help you choose your investments on the website’s educational section.
- Link your funding account: This is where you choose the checking or savings account for the fund transfer. For this step you’ll need the name of the financial institution, your bank’s routing number, and your account number. With a 401(k), 403(b), or 457 account, this step is unnecessary, as money is automatically transferred from your paycheck into the retirement account.
- Set your funding schedule: For robo-advisors, round-up apps, and self-directed accounts, you’ll select how frequently and how much money you wish to transfer from your bank account into the automated investment account. With your workplace retirement account, make sure to set up a large enough transfer to receive the employer match. Also, understand the maximum contribution limit into your 401(k).
Best Automated Investing Platforms
|Platform||Best For||Account Minimum||Fees|
|Wealthfront||Best Overall & Best For Goal Planning||$500 for investment accounts, $1 for cash accounts, $0 for financial planning||0.25% for most accounts, no trading commission or fees for withdrawals, minimums, or transfers. 0.42%–0.46% for 529 plans|
|Betterment||Best For Beginners & Best For Cash Management||$0, %10 to start investing||0.25% (annual) for investing plan or $4/month fee for balances under 20K, 0.40% (annual) for the premium plan|
|Interactive Advisors||Best For Portfolio Construction & Best For Socially Responsible Investing||$100 to $50,000||0.08-0.75% per year, depending on advisor and portfolio chosen|
|M1 Finance||Best For Low Costs & Best For Sophisticated Investors||$100 ($500 minimum for retirement accounts)||$0|
|E*TRADE Core Portfolios||Best For Mobile||$500||0.30%|
|Empower||Best For Portfolio Management||$100,00||0.49% to 0.89%|
|Merrill Guided Investing||Best For Education||$1000 or $20,000 with an advisor||0.45% annually of assets under management, assessed monthly. With advisor—0.85%. Discounts available for Bank of America Preferred Rewards participants.|
Understand the Top Automated Investment Types
You can set up an automated investment plan in a variety of ways. From robo-advisors to your employer 401(k), we’ll give you the rundown. Choose one or more automated investment types to ensure that you are converting today’s earnings into wealth for tomorrow.
- Robo-advisors: Robo-advisors such as Wealthfront, Betterment, and Schwab Intelligent Portfolios provide a low-fee option for smart investing. You inform the robo-advisor of your goals and timeline and the digital investment manager will create an investment portfolio that meets your needs. Set up an auto transfer into the account, either taxable or retirement, and the robo-advisor keeps your investments allocated according to your preferences. Some robo-advisors offer other services, including access to human financial advisors.
- Employer-sponsored retirement accounts: Most employers provide a way for you to save for retirement through a 401(k), 403(b), or 457 account. You choose a percent of your paycheck to transfer into the account. Some employers also include an additional matching contribution, up to a specific percent. The money is invested in stock, bond, or balanced funds that you select. While in the account, your money grows without being taxed.
- Dividend reinvestment plans (DRIP): A DRIP is an option within your investment account to have all of your dividends and capital gains payments automatically reinvested in the same asset. By reinvesting your investment income into additional shares, your account value will compound more quickly.
- Recurring transfer: You can direct your bank to have a specific amount of money regularly transferred from checking or savings into your investment account. The funds can be automatically transferred into taxable investment, retirement, and any financial account on a daily, weekly, monthly or other recurring schedule. Make sure to avoid overdrawing the linked account.
- Rounding up: Acorns and other round-up micro saving and investing apps allow you to link a debit and/or credit card to the app. After linking, select a round-up amount from the next dollar, up to 10 times the original amount. Whenever you spend with that card, the round-up amount will automatically be transferred into your investment account.
What You Need to Open an Automated Investing Account
First, find out what information is required to open an automated investing account.
The personal information and documentation required to complete the onboarding process typically includes:
- Social Security number (or taxpayer identification number)
- Telephone number
- E-mail address
- Date of birth
- Driver's license, passport information, or information from other government-issued identification
- Employment status and occupation
- Whether you are employed by a brokerage firm
- Annual income
- Net worth
- Investment objectives and risk tolerance
Fortunately for investors, there are many automated investment accounts with low-minimum deposit requirements. Minimum deposits can range from zero for many well known investment brokerage firms up to $100,000 for the comprehensive Empower robo-advisor, which also includes access to certified financial planners.
If you are new to investing and just starting out, you might open your automated investing account at a major brokerage firm that doesn’t require a minimum investment, such as E*TRADE, Fidelity, or Charles Schwab. Or, if you’re seeking a robo-advisor with low minimums, SoFi Automated Investing, M1 Finance, Betterment, Ally, and Ellevest all require less than $100 to get started.
Factors to Consider When Opening an Automated Investing Account
With so many choices about how to automate investing, it can be confusing to narrow down your selection. To make the decision easier, evaluate these factors:
Customer service: Phone customer service can be very important for both new and experienced investors. Be aware that some platforms do not offer live customer service. If talking to a human matters to you, then look into live customer service availability and contact times.
Fees and commissions: Research from Vanguard and other firms has shown a direct correlation between lower fees and higher investment performance. Before investing with any platform, understand the fees you’ll be paying, including management fees and fund expense ratios. Determine whether the services you’re receiving are worth the fees.
Account minimum: Investigate how much money you’ll need to open the account as well as maintain it. Determine whether there is a minimum balance requirement and if it is suitable for your financial situation.
Research tools: For self-directed investment accounts, carefully review the screeners, calculators, trading platforms, and research report availability. If you’re a self-directed investor, make certain, before opening an account, that the research tools match up with your needs.
What Is Automated Investing?
Automated investing is a strategy to ensure that you regularly save and invest for the future. We all have the tendency to forget to implement our best intentions. New Year's resolutions are frequently forgotten by February. Automated investing pre-programs our behavior to put investing for the future first.
Automated investing is best for anyone interested in converting today's earnings into tomorrow's prosperity. This strategy works when saving for retirement, a child's college education, general wealth-building, and saving for any goal that is more than five years in the future.
The automated investment concept involves implementing a few simple steps. First, select a paycheck, personal checking, or savings account from which the investment funds will be drawn. Next, choose where you want to invest. The choices include your workplace retirement account, a self-directed investment account, a micro-investing app, or a robo-advisor. Reinvesting your dividends and capital gains within your brokerage account is also considered automated investing. Pick the specific investments, and then set up a regular transfer from the cash account into the investment account.
Finally, you choose the amount and frequency of your auto investment strategy. Once the plan is enacted, your money will automatically transfer into the designated accounts and investments. That way, when markets go down, you’ll be less tempted to stop investing, because the entire process is automated. In fact, when markets go down, you’ll be set up to benefit from one of the best investment tenets: “Buy low.”
How Does Automated Investing Work?
Think of automated investing like automated bill pay. You set up the parameters, such as amount to be invested, the investment vehicles, and the funding method. After setup, regular transfers from your bank account or paycheck go directly to your investment accounts.
Is Automated Investing a Good Idea?
Automated investing is a good idea for nearly everyone. Behavioral finance research suggests that we are not always rational decision-makers. By helping you overcome less optimal investment behavior, such as irregular investing or avoiding investment, automated investing can improve your long-term financial success. Automated investing removes money from your account before you can spend it and diverts it into long-term financial assets, leading to wealth-building,
Is Automated Investing Risky?
Investing in financial markets is risky in that the value of your initial investment can decline. In fact, automated investing might be considered less risky than do-it-yourself investing. By regularly deploying money into the financial markets during both up and down markets, you are practicing dollar-cost-averaging. This ensures that you will buy more shares when prices are lower and fewer shares when prices are higher. This is the “buy low” recommendation in action.
Are Micro-Investing Apps a Good Choice?
Micro-investing apps have their pros and cons. The benefit of these round-up investment apps is that you can get started and continue investing regularly. The disadvantage is that if you only invest your spare change and do not set up a larger automated deposit into the app, it will take you a long time to build a substantial account balance.
For example, assume that monthly, you invest $50 in spare change into your investment account, which earns an average 7% per year. After 10 years, that account will be worth $8,704. Now add in a $350 monthly auto deposit in addition to the $50 spare change investment and you’re investing $400 per month. With an average 7% annual return, your account will grow to roughly $69,637 in 10 years.
Should I Use an Automated Investing Platform?
Yes, there are multiple reasons to use an automated investing platform.
- Automated investing removes the tendency to under-invest for the future.
- Automated investing saves time.
- Robo-advisors provide excellent pre-made, set-it-and-forget-it investment portfolios.
- Workplace retirement accounts offer automated investment into a variety of assets and free money with the employer match.
- Dividend reinvestment answers the question of ‘what to do with capital gains and income payments.
Anyone serious about planning for their future would be wise to consider setting up automated investment strategies.
Acorns. "What is the roundup multiplier?"
The US Securities and Exchange Commission. "How to open a brokerage account."
Robo Advisor Pros. "Top 5 Robo Advisors With Low Minimums."
Vanguard. "Don't let high costs eat away returns."
Investopedia. "Behavioral Finance."